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25 Cards in this Set
- Front
- Back
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Elasticity |
Concept to identify change % Change of A / % Change of B |
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Price Elasticity of Demand |
% Change in Qd / % Change in Price usually a negative # |
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Perfectly Inelastic Demand |
Elasticity=0 vertical D curve, ex. Insulin |
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Inelastic Demand |
Responds somewhat, numerical value of 0 to -1 |
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How to Calculate % Change |
(Q2-Q1/Q1) x100 same for Price |
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Income Elasticity of Demand |
% change in Qd / % change in Income |
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Cross-Price Elasticity of Demand |
% Change of Q of Y demanded / % Change of P of X Pos. = Substitutes Neg. = Complements |
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Perfect Competition |
Many firms, small industry, identical products, the firm's too small to control product Price. Ex. Gas Stations, Gum |
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Households make 3 decisions |
1. How much to Buy. 2. How much Labor to supply. 3. How much to spend vs how much to save. |
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Budget Constraint Formula |
P of x times X ) + ( P of y times Y = 1 |
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*** Utility Maximizing Rule |
MUx/Px = MUy/Py if unequal consume more of the one that's bigger |
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Income Effect |
When P goes down our Real income goes up, vice versa |
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Substitution Effect |
As P goes down, buy more of it. Ex. Pop |
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Diamond/Water Paradox |
Water is abundant it's MU is near 0 but diamonds are scarce so their MU is high |
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Labor Supply Curve |
Good supplied is labor, shows the quantity of labor at different wages. Ex. Sub Effect the curve goes up. Ex. Income Effect goes down. |
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Short Run Decision |
Firm acting under a fixed scale of production, locked into decisions |
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Long Run Decision |
Firms can adjust to anything they want to |
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Firms Decisions Factors |
1. Market Price of Output 2. Techniques of Production 3. Price of Inputs |
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Production Technology |
Multiple ways to do something, relationship between inputs and outputs |
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Labor Intensive Tech. |
Less capital more labor |
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Capital Intensive Tech. |
Few workers more capital |
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Production Function |
Numeric relationship between inputs and outputs |
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*** Marginal Product |
The additional output that can be produced by adding one more unit of input. |
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Average Product |
Total Product /Total Units of Labor |
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*** Law of Diminishing Returns |
"Short Run Concept" when adding input, at a point the Marginal Product goes down. Ex. Subway one more worker might not add anything if there's no more room to work. |
